Five Critical Questions Divorcing Women Need to Answer Before Deciding to Keep the House

Know your options before making this critical decision

by Jeffrey A. Landers • Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC

Throughout my years as a Divorce Financial Strategist, I’ve learned that my clients tend to fall into three separate groups when we discuss their attitudes towards their marital residence. The first group sees the house as not just a piece of real estate, but as a home filled with family history and sentimental value. The second group feels quite differently. They consider the house the center of painful memories and/or the root of financial trouble.  The last group adopts a more matter-of-fact approach, seeing the marital residence as neither overwhelmingly positive nor negative. To them, the house is an asset –like many others --to be negotiated in the divorce process.

Regardless of how you view it, rest assured of one thing: Your marital residence is likely to figure prominently in your divorce proceedings. Often, it’s the biggest asset a couple owns together, and usually, it comes “ fully furnished” with all sorts of emotional trappings, as well. Part of our job at Bedrock Divorce Advisors is to complete the financial analyses needed to help a woman understand if she can afford to own the house, and if so, for how long. For example, if you’re going through a divorce and think you would like to keep your martial residence, consider the following questions:

Why are you interested in keeping the house? There are many practical and fair reasons to want to keep the house. Perhaps you’re raising your children in this house, and it’s near both school and work. Or, it could be a family home passed down from generation to generation. Just be sure that your list of reasons to keep the house isn’t dominated by purely emotional ones. Remember: In order to reach a divorce settlement agreement that puts you on solid financial footing, you’ll need to Think Financially, Not Emotionally®. Also, please keep this in mind: When children are involved, the parent who is awarded custody often stands the best chance of being awarded the house, as well. Most courts want to minimize disruptions to children and family routines, if at all possible.

Can you afford to keep the house? Whatever your income level, this is a critically important question.  House-related expenses can significantly impact your budget once you are single, so make sure you carefully consider all the costs associated with home ownership: mortgage payments, real estate taxes, utility bills, maintenance, repairs, landscaping and upkeep, etc.  Even affluent women who own marital residences worth millions of dollars, mortgage-free, will have to sell their houses at some point. Why? Because it’s just not sensible for them to keep so much cash tied up in these relatively illiquid investments (which, in this economy, may not increase in value for many years).

Have you fully considered the true worth of the house vs. other assets? Not all assets that are valued the same are actually worth the same.  Here’s an example to illustrate my point: Let’s say you’re trying to decide whether to keep a $600,000 bank account or a $600,000 house that’s completely paid off. You really love the house, and you’re leaning in that direction. Great idea? Maybe. But, you need to carefully assess how the house will impact your bottom line –both now and years down the road. Even mortgage-free home ownership involves expenses, such as real estate taxes that need to be paid every year, upkeep and maintenance, fuel costs, etc.  In addition, when you eventually sell your home you may be hit with a big capital gains tax bill. Let’s assume you bought the home for $200,000, and it’s now worth $600,000. Your capital gain is $400,000. Subtract your $250,000 capital gains exclusion as a single person, and you’ll have to pay capital gains tax on $150,000. At the current capital gains tax rate of 15 percent, that amounts to a $22,500 tax bill! (And chances are pretty good that those tax rates will increase in the near future.)

Once you complete this type of analysis, the cash may look like a much better option than the house.

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